PLANSPONSOR - December/January 2021 - 32

ADMINISTRATION & GOVERNANCE | OUTSOURCING
fiduciary standard.
2) Transferring employee deferrals to
the plan trust in a timely way. " When our
clients have a problem with this, it's often
simply a technical glitch, " Stapel says. This
can happen when an employer has multiple
locations and one continues to handle
payroll tasks manually, for instance. " That
gets humans involved, and a human could
forget to do it, " she notes.
3) Processing loan and distribution
requests. Only requests with all required
information should get approved. " Part of
the problem is that sometimes you don't
get all the right information from a participant,
to process a request, " Stapel says.
" If you don't have all the information you
need, it becomes incumbent on you as a
fiduciary to get it. "
4) Sending required participant
notices. Providing participants with fee
disclosures under ERISA Section 404
clearly falls under fiduciary duties, Stapel
says. " Not all other participant communication
is a fiduciary function, however,
Investment
Fiduciary
Outsourcing
Options
THE DIFFERENT flavors of fiduciary
service are named for the section
of the Employee Retirement Income
Security Act (ERISA) under which
providers are regulated. Aside from
seeking assistance with plan administrative
fiduciary duties, sponsors
seek support with investment selection
and monitoring. That comes in
two ways: 1) A Section 3(21) adviser
provides advice but does not have
final discretion over plan assets, and
2) a Section 3(38) investment manager
has full control or discretion over plan
participants' assets. -PS
other than that there is an overriding fiduciary
duty under ERISA to not mislead
participants, " she says. So if a participant
communication contains inaccuracies
about the plan features, that is problematic
from a fiduciary perspective.
5) Protecting participants' data privacy
and cybersecurity. This is an emerging area
of case law that speaks to 3(16) fiduciary
responsibilities, Stapel says. " Fortunately,
so far, employee benefit plans haven't been
subject to any of the really high-profile data
breaches, but I think it's only a matter of
time, " she says. " I think we'll see more case
law on a participant data breach being characterized
as a breach of fiduciary duties. "
Support Services
Some sponsors see the term " fiduciary
support services " listed in their recordkeeping
services agreement and mistakenly
assume it means the recordkeeper has
accepted fiduciary responsibility for those
duties, says Ron W. Hagan, president and
chief operating officer (COO) at consultancy
Roland Criss Fiduciary Services in
Arlington, Texas. " Often, recordkeepers
perform many of these administrative
duties, and the plan sponsor mistakenly
thinks they're doing more than the contract
actually states. But the recordkeeper would
say that it's not making any discretionary
decisions, so it isn't a fiduciary. "
Sponsors seeking support in this area,
however, can turn to certain providers,
such as some third-party administrators
(TPAs), that will take on 3(16) status.
Fiduciary services that a 3(16) provider
commonly handles include determining
employees' eligibility to participate in
the plan and putting together the annual
Form 5500, Curran says.
But what fiduciary responsibilities
3(16) outsourcers will take off a plan sponsor's
plate varies. " If you want to hire a
3(16) provider, you need to understand
what it is willing to do for you on a fiduciary
basis, " Kaleda says. " A provider may
be willing to do some administrative work
as a fiduciary, but on other things it's not
willing to be a fiduciary. "
32 PLANSPONSOR.COM December 2020 - January 2021
Some employers incorrectly assume
that hiring a 3(16) fiduciary releases them
from all fiduciary administrative duties,
Curran says. " Sponsors need to be careful
about whether the provider is accepting
fiduciary status for all of the duties under
3(16), or only responsibilities outlined in a
service contract, " he says.
And utilizing a 3(16) administrative
services provider does not release the
sponsor from investment-related fiduciary
responsibilities. " Hiring a provider
to be a 3(16) administrator doesn't include
working on investments, " Kaleda says.
Some providers will take on investment
and administrative fiduciary roles, which,
he says, could be a conflict of interest.
" It depends on the fee structure, "
Kaleda says. If the investment management
side of a provider selects funds that
pay revenue sharing to the administrative
services side of the same provider, that's
potentially problematic. " And the skill set
it takes to be a good 3(16) administrator is
not the same set it takes to be a good investment
manager. You want to be sure the
provider has expertise in both. "
Hagan sees increased fiduciary risk
for plan sponsors that have one provider
take on both 3(16) fiduciary administrative
responsibility and 3(38) fiduciary
investment management. " The risk is
that if I've given everything over to a
bundled provider, how am I, as a sponsor,
monitoring its work? " he says.
Whatever fiduciary duties a 3(16)
provider takes on, the selection and monitoring
of the provider-including benchmarking
fees and services-still falls
under the legal obligations of the sponsor.
It is important to determine every year
how well the provider met its contractual
responsibilities, Hagan says. It is also
helpful for the provider to participate in
quarterly committee meetings, and he
suggests having interim conversations
to discuss any issues that have surfaced.
" Being in touch regularly with your 3(16)
provider is how you demonstrate your
prudent monitoring process, " he says.
-Judy Ward
http://www.PLANSPONSOR.COM
PLANSPONSOR - December/January 2021

Table of Contents for the Digital Edition of PLANSPONSOR - December/January 2021
